price war


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price war

a situation of aggressive price cutting by a group of rival suppliers as a means of gaining sales at each other's expense. Since price wars, however, tend to be mutually ruinous by destroying the profitability of the market, they are normally avoided, with suppliers preferring to compete instead through various PRODUCT DIFFERENTIATION strategies. See OLIGOPOLY, CARTEL, COLLUSION, PRICE LEADERSHIP.

price war

any competition between rival suppliers centred on aggressive PRICE cutting. Price wars often break out when demand for a product is depressed and there is EXCESS SUPPLY capacity in the market. If FIXED COSTS are a high proportion of total costs, suppliers may be tempted to cut their prices to maintain full capacity working.

Price warfare is beneficial to the consumer and to RESOURCE ALLOCATION within the market insofar as it serves to eliminate inefficient, high-cost suppliers. The problem from the suppliers’ point of view is that cut- throat price competition reduces the profitability of the market and everybody finishes up worse off. For this reason, suppliers, particularly OLIGOPOLY suppliers, will normally try to avoid price wars and direct their competitive efforts into PRODUCT DIFFERENTIATION activities. See COMPETITION METHODS, PRICE LEADERSHIP.

References in periodicals archive ?
This is just to demonstrate the implications of the current crude oil glut on the global market, although the current oil price war is different from and far more complicated than that of the 1980s (see the Iran-Iraq war or tanker war via Google).
"Food supplier insolvencies are still rising as small producers continue to be the major casualties in the supermarket price war."
We expect grocery deflation to continue well into 2015 as the price war rumbles on."
In that price war, Saudi Arabia and its GCC allies forced Iran's Shi'ite theocracy to take a course that in August 1988 compelled Tehran to accept a truce in a tiring military fight with the troops of Iraq's Sunni/Ba'thist dictatorship of Saddam Hussein.
"The timing of Iran's price cuts makes a price war more and more probable," Eugen Weinberg, head of commodities research at Commerzbank AG in Frankfurt, told Bloomberg news.
It remains to be seen whether the current softness in the oil market will turn into a price war because each member country is expected to fight for its market share.
Saudi Arabia's insurance regulator, Saudi Arabian Monetary Agency (SAMA), has largely succeeded in stopping the local insurance price war of 2012-2013, reports Standard & Poor's in Insurance In Saudi Arabia: The Price War May Be Over But The Fight For Market Share Continues.
In Panama the increase in room supply has caused a price war between hotels trying to attract travelers and increase the occupancy rate which on average is not more than 60%, reports Laestrella.com.pa (July 18, 2014), Hotel occupancy has been declining since 2011, when it stood at 68.6% dropping to 59.3% within the sector this year, according to the Tourism Authority of Panama (ATP).
The 3.5% slump for food in the quarter to July came in the face of the supermarket price war as discounters continue to make inroads.
Embattled Morrisons are to ramp up the high street price war tomorrow with a new wave of discounts.
Summary: Muscat: Yet another price war has erupted in the Oman-India skies as low-cost airline SpiceJet ...
THE price war that has been waged by bookmakers in recent months became more and more heated in the run-up to Cheltenham, with firms "keen to steal lunch off the plates of our competitors", as David Williams of Ladbrokes described it yesterday as layers reflected on the festival, writes Stuart Riley.